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The Swiss option: ‘Pick and choose’ – the Swiss option of bilateral agreements would provide
greater flexibility but reduce market access and British influence

Another option for the UK would be to continue its economic relationship with the EU
through a framework of bilateral agreements in a way similar to Switzerland. After
the Swiss public narrowly rejected the EEA Agreement in a referendum, Switzerland
decided to negotiate bilateral trade agreements with the EU building on their 1972
free trade agreement.

After six years of negotiation Switzerland was able to conclude a package of seven
bilateral agreements in 1999, usually referred to as ‘Bilaterals I’, which are
mainly liberalisation and market opening agreements and covered free movement of
persons, technical trade barriers, public procurement, agriculture and air &
land transport. This was complemented with a further nine agreements in
‘Bilaterals II’ in 2004, which strengthened co-operation in the economic sphere and
extended cooperation, including Schengen, taxation of savings, environment, pensions
and measures to combat fraud. In total there are now over 120 agreements in force
between Switzerland and the EU.

Advocates argue that the Swiss model would enable the UK to pick and choose the pros without the costs, in particular being free from the regulations emanating from Brussels. Swiss exporters must still meet EU standards when selling to the EU, but they are not obliged to apply these standards to the domestic economy or to non-EU exports. They are also free to negotiate their own free trade agreements and do not contribute to the EU budget.

The Swiss agreements exclude the Common Agricultural Policy and, more importantly,
services, where the parties have not been able to reach an agreement beyond parts of
the insurance industry, despite evidence of a positive impact for both Switzerland
and the EU.[20]

The Swiss model seems at first an attractive way to sign agreements on areas of
national interest while exempting areas where it is important to keep control at
national level. However, the time it would take for the UK to renegotiate an
agreement similar to the Swiss would mean a significant period of dislocation as
negotiation takes place. Moreover, looking at Switzerland, there is no guarantee
that the UK would achieve agreements on all its prioritised areas while keeping
other challenging elements out, as there are two parties to the agreement. The UK
would be likely to end up having to accept a balanced package of rules related to
the Single Market in order to get market access. It is also an illusion that the
Swiss option would enable the UK to choose freely when to update the agreement.
Although bilateral agreements are static, and the UK would have the power to ‘say
no’ to new regulations, it would be in the UK’s national interest to continue
updating UK rules reflecting changes in EU law in areas covered by the agreement to
ensure that businesses retained market access. This would then be done without the
UK having any say in the policymaking process of these rules.

British companies would enjoy access to the Single Market, but only in limited areas
where it could sign bilateral agreements and was prepared to follow EU rules

While capital flows between Switzerland and the EU are fully open, Swiss companies
only enjoy tariff and duty free access to the EU’s Single Market – and right of
establishment within it - in those areas covered by the bilateral agreements. Direct
savings have been made both through reduction in trade barriers and, more
importantly, through simplification of rules on testing and admission of products
for the entire European market which is carried out by a single certification
body.[21] Swiss merchandise exports to
the EU are concentrated on a few sectors, particularly chemicals and medicinal
products, machinery, instruments and watches.[22]

However, this option would only provide British businesses with access to those parts
of the Single Market covered by the content of the agreement. In the Swiss case, the
areas covered by bilateral agreements fell short of Swiss ambitions for access and
were limited to those suggested by the Council rather than those pushed for by the
Swiss.[23] Were the UK to struggle to get
an agreement on services, a substantial part of its economy would be left outside
the Single Market with companies in these sectors having to pay the price of leaving
the EU. This would be particularly true for financial services.[24] Moreover, the UK would have to apply EU rules as
agreed in the bilateral agreement and although, much of the regulatory
implementation is ‘voluntary’, the UK would have to continually update UK law to fit
with changing EU regulations to retain market access for its companies. The
alternative would be to maintain two regulatory regimes, one for domestic products
and another for those being exported to the EU, which would be extremely undesirable
from a business perspective. It is simply not true to state that the Swiss
are ‘spared the regulatory burden of Brussels’ while retaining full access to the
Single Market as many argue.

By signing agreements that cannot be amended substantially without renegotiation,
Switzerland has retained formal control over which EU rules they chose to be
incorporated into Swiss law. However, for Swiss businesses to be allowed to continue
to export, they need to follow the rules of the EU. This is only guaranteed as long
as the EU rules remain the same as when the agreement was made; if the EU’s laws are
changed, Swiss businesses lose access unless Switzerland adjusts its rules
accordingly. Switzerland therefore opts to ‘autonomously introduce’ similar measures
to the EU to make sure its industry doesn’t have obstacles in accessing the EU
market.[25] According to the European
Commission, “the on-going implementation of these agreements obliges Switzerland to
take over relevant Community legislation in the covered sectors”.[26] Although there is some flexibility in how these pieces
of legsilation are implemented, moves towards the further harmonisation of rules
between EU member states has meant it is becoming increasingly difficult for
Switzerland to secure exemptions to implemenation.[27]

As with Norway, the Swiss option would enable an independent UK trade agenda, but
its limitations and the risk of dislocation make the flexibility less attractive for
British business

Switzerland is able to freely negotiate trade agreements with other countries by
choosing not to take part in the EU’s common trade policy. It has chosen to make
many of its FTAs through EFTA, both because it gives them a stronger hand in
negotiations and also because it can rely on the trade negotiation competence in the
EFTA Secretariat. It has also individually signed FTAs with Japan and China.
However, as stated in the previous section on the ‘WTO option’, signing FTAs is not
only about numbers – it is about quality, including how many areas are covered and
how deep the agreement is. The quality of a deal depends on the balance of power
between the parties. In the Swiss case, a KPMG study of the agreement stated that it
appears that more market access opportunities have been granted for Chinese products
being imported into Switzerland than vice versa. Looking at the structure of the
tariff reduction schedule, nearly all of China’s major exports to Switzerland –
textiles, light consumer goods, and equipment – will immediately enjoy benefits when
the FTA becomes effective.[28]

As with the EEA option, the UK could sign FTAs with other countries in the world.
This is a more flexible solution compared to negotiating with 28 EU member states.
However, as the Swiss–Chinese FTA illustrates, being able to sign trade agreements
doesn’t mean that the final result would necessarily be in the UK’s interests.
Compared to the EU, the UK is a much smaller market and might not offer enough
opportunities for other countries to see the value of signing an FTA on the UK’s
terms.

Switzerland has to accept free movement of people but is allowed to introduce quotas
on EU migrants

Like Norway, Switzerland had to accept free movement of people to gain access to the
Single Market. According to the Swiss government, the biggest economic impact of the
bilateral agreements results from the liberalisation of the movement of persons,
making it easier to transfer Swiss staff to positions in the EU states and also to
recruit workers for the Swiss labour market.[29]

Switzerland has some autonomous control over its borders and immigration through the
safeguards clause which it obtained in the negotiations. The clause gives it the
right to cap immigration over a limited period of time if the number of EU arrivals
in a given year exceeds the average for the three preceding years by at least 10%.

This has recently been used by Switzerland to introduce quotas on certain residence
permits, initially only for eight EU member states including Poland and Hungary, but
in May 2013 extended to 17 countries including Germany and the UK. However, the EU
argues that Switzerland is breaking the rules on free movement of people because
they discriminate between groups of countries within the EU, and it has indicated
that there might be restrictions on market access if the quotas continue. The Swiss
business lobby Economiesuisse urged the Swiss government to prevent the
quotas doing further damage to Switzerland’s difficult relations with the EU and
warned that this could hurt the country’s businesses as many employers have a
shortage of skilled employees and may face hiring problems.[30]

For the UK, adopting arrangements similar to Switzerland’s would mean a continuation
of free movement of people. While this would be a positive for British business, it
would not be a positive for those who want to leave the EU to reduce immigration.
The Swiss example is a good illustration of the difficulty of cherry picking in the
EU. Switzerland initially did not want the free movement of people; in fact, it was
a key reason for the Swiss rejection of the EEA Agreement. Yet, Switzerland still
had to accept this when they negotiated the first package of bilateral agreements
because the EU saw this as essential for the operation of a Single Market.

The UK may well be able to get an agreement on quotas in line with the Swiss
situation although the need for quotas for Switzerland is arguably higher than for
the UK because the level of immigration relative to its population is far higher
than the UK’s.

The UK would pay substantially less to the EU’s budget, but would equally lose
access to funding programmes unless it chose to make the required contribution

Switzerland does not contribute to the EU budget, but does take part in the EU’s
Research Framework Programmes. Participation in this is optional and dependent on
contributions. The participation is legally based in the 1999 Research Agreement,
but Switzerland has to negotiate the contributions it has to make for each new
programme to enjoy full participation. Switzerland's contribution to the seventh
framework programme is approximately €220 million per year over the seven year
period.[31] According to the government,
in the sixth programme Switzerland achieved a return on its financial contributions
of more than 100% in the form of project support for researchers in Switzerland.[32]

An evaluation report from 2009 argued that participation was positive because the
collaborative international approach is essential for numerous cutting-edge research
fields. In particular, integration into international research networks provides
access to specialist expertise abroad and a better knowledge of the competitive
environment.[33]

Participation in this is optional and dependent on contributions. The UK could choose
to remain outside and fund research nationally, or it could pay to be part of the
programmes if it deemed them worth the costs.

The UK would have even less influence over European rules in the ‘Swiss option’ than
were it to join the EEA, making the UK almost as much a standards taker as if it
opted for the WTO option

Switzerland has to follow all the rules on the areas covered by the bilateral
agreements, without being able to set the agenda and influence the development of
those rules. Like Norway, Switzerland has no formal say in EU decision-making.
Moreover, as a general rule, Swiss experts are not even allowed to sit on EU expert
groups. Lack of information on, and notification of, new EU legislative proposals
that involve even the fields covered in the bilateral agreements limit the
possibility of the Swiss participating in the decision-shaping process.[34] As with Norway, the result of the Swiss
not being involved in the practical aspects of EU decision-making is that certain
developments go unseen by the national administration.

For the UK, the Swiss option would be even worse than the EEA option, as the latter
at least provides some opportunity to input while policies are being drafted. As
stated in the previous section on Norway, it is not in the UK’s national interest to
reduce itself to a standards taker.

The Swiss bilaterals involve complex – and time-consuming – negotiations with the
EU, which the union is not keen to replicate

The Swiss relationship with the EU is not a formal model that lends itself to being
readily replicated and there are several practical challenges with the UK opting for
a ‘Swiss solution’.

Negotiating trade agreements is a complex and time-consuming process, meaning costs
to businesses due to uncertainty. Bilateral I took more than six years to negotiate,
from proposing negotiations in 1993 to concluding in 1999, and it did not enter into
force until June 2002, meaning that Swiss businesses were without the level of
access they desired for nearly a decade after negotiations began. Were the UK to
leave the EU and opt for a Swiss option, a substantial period of dislocation is
therefore likely.

The process and administrative system surrounding the management of the agreements is
viewed as burdensome, with 27 Joint Committees in total. In some cases it has proven
to be a challenge to determine under which committee a certain sectoral agreement
falls, causing delays that could be costly for businesses, such as the case of
mutual recognition of driving licences, or customs formalities in relation to
provision of services, or standards for wooden containers.[35]

The lack of any formal dispute resolution mechanism with sanctioning powers – with
the exemption of the area of air transport, where the Commission and ECJ has been
given competition powers over Switzerland - means that it is difficult for
businesses to get clarification in case of disagreement.[36] There is no official institution to interpret the
sectoral bilateral agreements in a universal manner. This creates legal uncertainty
and poses a potential barrier to trade.

"

Switzerland has to follow all the rules on the areas covered
by the bilateral agreements, without being able to influence their design.

Finally, sustainability of the Swiss option has been questioned, as it is not a model
favoured by the European Commission or by EU member states. The pressure for change
from the Commission focuses on getting a better overall framework for the large
number of agreements. Switzerland and the EU are currently discussing changing the
relationship by adopting a more comprehensive and coordinated approach encompassing
all current bilateral issues between Switzerland and the EU. This could include a
type of surveillance mechanism and a dispute settlement mechanism, similar to the
EEA institutions that govern the Norwegian EU relationship. Given the direction of
travel of the EU–Swiss relationship, it is unlikely that the UK could achieve a
relationship on the same basis, even if it were desirable.

[22] Economisuisse, ‘40th Anniversary of
the free trade agreement between Switzerland and the EU’, 2004

[23] Pascal Sciarini, Cédric Dupont and
Omar Serrano, Which future for Switzerland's bilateral strategy towards the
European Union? A qualitative comparative analysis of agenda-setting, The
Graduate Institute of Geneva, Centre for Trade and Economic Integration, Working
Papers, 2010

[24] Clive Church, Dr Paolo Dardanelli and
Sean Mueller, Implications for the UK Financial Sector of a ‘Swiss Model’ of
relations with the European Union, Centre for Swiss Politics, University of
Kent, January 2013

[30] European Voice, Switzerland seeks to
limit number of EU workers, 27 March 2013; and Manon Malhere, Free movement of
persons: Swiss victims of own success, Europolitics special issue on
Switzerland, 20 April 2012

[31] European Commission, METRIS -
Monitoring European Trends in Social Sciences and Humanities –
Switzerland Funding system European and international funding, 10 October 2013.

[32] Switzerland Department of Economic
Affairs website, ‘Research’, available at

[33] Swiss Confederation, Federal
Department of Home Affairs and State Secretariat for Education and Research,
Effects of Swiss participation in EU Research Framework Programmes Interim
report, 2009, 2010